Older workers clog the employment pipeline

By Anne Tergesen

Getty Images

Don’t expect the trend toward retiring at older ages to stop any time soon.

That’s the conclusion of a new survey of over 4,200 full-time U.S. workers by consulting firm TowersWatson. On the whole, the survey is pessimistic about the trend, which in today’s lackluster job market is impeding job “opportunities for the young.” It also has a downside for employers: Many people who are delaying retirement are less healthy, more stressed, and more likely to be disengaged from their jobs, according to the survey.

“The concern for employers is that this creates a productivity drag,” says Steve Nyce, a senior economist at TowersWatson.

First, the specifics. According to Census Bureau data, labor force participation rates for older men have risen steadily over the past 25 years. Among men ages 65 and over, for example, 24% are now in the workforce, up from 17% in 1990. For those ages 55 to 64, 70% have jobs or are looking for work, up from 67% in 1990. Meanwhile, younger men are experiencing the opposite: For 25 to 54 year olds, labor force participation rates have declined from 93% in 1990 to 88% today. (The trends for women are the same.)

Why the reversal? One factor has to do with big changes in retirement benefits. Since 1990, the percentage of employers offering defined benefit pension plans to new employees has declined to 24% from 60%, according to TowersWatson. As a result, the “generous early retirement subsidies” these plans typically offered are a thing of the past. At the same time, the rise of the 401(k), which puts the onus on employees to save, has contributed to retirement savings shortfalls that are pressuring people to work longer.

Changes in Social Security have also had an impact. Specifically, the so-called full retirement age, at which beneficiaries are eligible to take 100% of their benefits, has risen steadily from 65 to 67 for those born between 1938 and 1960. Then there’s the spread of knowledge- and technology-based jobs, which make it possible for people to continue to work well past the age at which many coal miners and assembly-line workers retire.

The trend is unlikely to reverse any time soon, the survey says. In 2013, 43% of full-time employees reported that the age at which they plan to retire has increased over the past three years—up from 34% who said the same in 2009. Moreover, “nearly three-quarters of those delaying retirement are planning a delay of three or more years.”

Overall, half of the survey’s respondents say they plan to retire after age 65—up nine percentage points from 2009. And over 30% plan to retire at 70 or beyond.

For employers, the trend is a mixed bag. On the one hand, they have an opportunity to retain employees with experience and talent. But older employees also tend to cost more than their younger counterparts. And, as mentioned above, they may be less productive as well. “Disengaged workers,” TowersWatson says, “are 11 percentage points more likely to delay retirement and 12 percentage points more likely to expect to retire at older ages” than those who report being engaged in their jobs, the survey says. Moreover, workers who say they are in fair or poor health are “increasingly likely” to say they want to delay retirement—perhaps because they spent more of their savings on medical bills– compared with those in good health.” (Still, due to health problems, many may not be able to delay.)

Yet another problem for employers? Because older workers aren’t moving on, they can’t hire the younger workers they will inevitably need as replacements. Until the job market and the economy improve, the survey says, “retirement delays among older workers” will “impede opportunities for the young, as fewer new jobs open up to replace retiring employees.” According to TowersWatson, 34% of survey respondents under 40 “believe that retirement delays among older workers are restricting their career opportunities.”

The solution? Nyce says there are no easy answers, but for some employers, it may make sense to spend more on retirement benefits — and less on employee health care or bonuses.

Story Conversation

About Encore

Encore looks at the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities, needs and priorities of people saving for and living in retirement. Our lead blogger is editor Matthew Heimer, and frequent contributors include editor Amy Hoak, writer Catey Hill, and MarketWatch columnists Elizabeth O’Brien, Robert Powell and Andrea Coombes. Encore also features regular commentary from The Wall Street Journal retirement columnists Glenn Ruffenach and Anne Tergesen and the Director of the Center for Retirement Research at Boston College, Alicia H. Munnell.